Mid States Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 80 percent and the probability of a recession is 20 percent. It is projected that the company will generate a total cash flow of $204 million in a boom year and $95 million in a recession. The company's required debt payment at the end of the year is $129 million. The market value of the company's outstanding debt is $102 million. The company pays no taxes. What payoff do bondholders expect to receive in the event of a recession? (Do not a. round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) What is the promised return on the company's debt? (Do not round intermediate b. calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the expected return on the company's debt? (Do not round intermediate c. calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Payoff b. Promised return c. Expected return % %

Mid States Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 80 percent and the probability of a recession is 20 percent. It is projected that the company will generate a total cash flow of $204 million in a boom year and $95 million in a recession. The company's required debt payment at the end of the year is $129 million. The market value of the company's outstanding debt is $102 million. The company pays no taxes. What payoff do bondholders expect to receive in the event of a recession? (Do not a. round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) What is the promised return on the company's debt? (Do not round intermediate b. calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the expected return on the company's debt? (Do not round intermediate c. calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Payoff b. Promised return c. Expected return % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

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